VAT On Preliminary Processed Products: Ministry Of Finance Provides Detailed Guidance On Scope Of Application

The Ministry of Finance is actively developing and proposing important content in the Draft Decree guiding the implementation of several articles of the Law on Value Added Tax (VAT). A notable point in this update is the detailed regulation of VAT-exempt entities, particularly products that have only undergone common preliminary processing. The objective of this is to resolve practical application issues and ensure a stable, transparent, and easily understandable tax policy.

Difficulties In Identifying Preliminary Processed Products Currently

According to current regulations in Clause 1, Article 5 of the Law on VAT, products from cultivation, planted forests, animal husbandry, aquaculture, and fishing that have not been processed into other products or have only undergone common preliminary processing are not subject to VAT. This content has been further specified in Clause 1, Article 3 of Decree No. 209/2013/ND-CP and subsequent amending and supplementing Decrees.

The Ministry of Finance has also issued Circulars such as Circular No. 219/2013/TT-BTC and Circular No. 83/2014/TT-BTC to provide detailed guidance on common preliminary processing methods. Accordingly, a product is considered to have only undergone preliminary processing if it has only undergone simple steps such as:

• Cleaning
• Sun-drying
• Kiln-drying
• Shelling
• Seed separation
• Cutting
• Salting
• Refrigeration
• Other common preservation methods that do not change the fundamental nature of the product.

However, in practice, businesses and tax authorities still face considerable difficulties in determining the boundary between commonly preliminary processed products and products that have undergone further processing.

New Draft Decree Addresses VAT Issues For Preliminary Processed Products

To overcome these shortcomings, the Draft Decree guiding the implementation of several articles of the Law on VAT will continue to inherit and supplement in more detail the list of preliminary processing methods considered common. This is expected to bring uniformity in application, ensure transparency and fairness for all businesses, and minimize risks in VAT processing.

According to the draft, products that have only undergone common preliminary processing will include:

• Cleaning
• Sun-drying
• Kiln-drying
• Shelling
• Grinding
• Grinding to remove husks
• Milling to remove husks
• Seed separation
• Stem separation
• Cutting
• Polishing grains
• Coating grains
• Dividing into parts
• Deboning
• Chopping
• Skinning
• Crushing
• Thinning
• Salting
• Hermetically sealing in cans
• Refrigeration (chilling, freezing)
• Preservation with sulfur dioxide gas
• Preservation with chemicals to prevent decay
• Soaking in sulfur solutions or other preservative solutions.

In cases where it is still not possible to determine, the Ministry of Agriculture and Rural Development will be the competent authority to consider and make the final decision on whether a product falls under the category of commonly preliminary processed. This helps ensure objectivity and transparency in the implementation of VAT policy.

Ensuring Consistency In The Implementation Of VAT Policy

The Ministry of Finance emphasizes that the detailed regulation of commonly preliminary processed products will significantly contribute to ensuring the consistency of the tax legal system. This content is fully consistent with the Law on VAT and current guiding documents, while also inheriting regulations that have been stably implemented for many years.

This policy also ensures synchronization between VAT law and tax administration law in general, facilitating tax authorities in managing and controlling the application of the policy effectively.

Furthermore, this new regulation does not violate any international commitments of Vietnam, ensuring compatibility with trade agreements that Vietnam has signed. This will facilitate international trade and minimize tax disputes during import and export of goods.

This new policy does not create any additional compliance costs for taxpayers, helping businesses and individuals continue to operate stably without facing additional tax procedural barriers.

On the other hand, clarifying the scope of application of the tax policy will create a more transparent and fair business environment among enterprises, avoiding unfair competition due to misinterpretation or inconsistent application of regulations.

This regulation also does not negatively affect production and business activities in the agriculture, aquaculture, and animal husbandry sectors. Businesses in these sectors can confidently maintain operations without worrying about sudden changes in tax policy.

The Ministry of Finance also highly appreciates that the Draft Decree does not create new administrative procedures, helping to simplify the tax declaration process and reduce the workload for both businesses and tax authorities. The clear regulation of the list of commonly preliminary processed products also contributes to minimizing disputes, saving time and costs for resolving tax complaints.

Conclusion

The addition of detailed regulations on commonly preliminary processed products in the Draft Decree is a necessary step to enhance transparency and consistency in Vietnam’s VAT policy. This regulation not only helps address existing issues in practical application but also contributes to improving the efficiency of tax administration, supporting business production and operations, and ensuring compliance with the legal system and Vietnam’s international commitments.